Rules may help figure retirement

Wednesday

May 15, 2013 at 12:01 AM

If you have a defined-benefit pension or a traditional plan provided by your employer, federal law says you have to be provided with an illustration of how much money you can expect to receive each month.

Michelle Singletary

If you have a defined-benefit pension or a traditional plan provided by your employer, federal law says you have to be provided with an illustration of how much money you can expect to receive each month.

But if you have money invested in a 401(k), the only thing you may see is a lump-sum amount and little if any direction on how that money translates into a monthly payment.

The Department of Labor's Employee Benefits Security Administration is considering rules that would require estimated income illustrations for workers participating in defined-contribution pension plans such as 401(k)s and 403(b)s.

According to the Labor Department, there are almost 660,000 private-sector employer-sponsored defined-contribution plans covered by the Employee Retirement Income Security Act, known as ERISA. The bulk of the plans, 500,000, are ones in which workers are responsible for directing the investment of their own retirement assets.

By breaking down retirement money as monthly payments for an expected lifetime, said Phyllis C. Borzi, assistant labor secretary for employee benefits security, it might make many people realize they don't have enough saved.

This is your chance to help the government come up with an illustration that makes sense to you. The Labor Department is seeking input from workers, employers and others in developing these possible regulations.

You can send your comments to the attention of the Pension Benefits Statement Project at the U.S. Department of Labor, Office of Regulations and Interpretations, Employee Benefits Security Administration, Room N-5655, 200 Constitution Ave. NW, Washington, DC 20210. You also can submit comments by email to e-ORI@dol.gov with RIN 1210-AB20 in the subject line. Comments are due by July 8.

For now, the idea being kicked around is to have your statement project estimated payments, one based on your current plan balance and a second that would consider various assumptions:

» You would continue making contributions until you retire at 65, increasing the amount at a rate of 3 percent a year.

» A return of 7 percent per year (about 4 percent real return and 3 percent future inflation), an assumption based on historical market returns derived by participants in 401(k) plans, the department said.

» A discount rate of 3 percent per year, in order to show the projected account balance in today's dollars. The department said it is using the 3 percent figure because it reflects both historical inflation and expectations for future inflation.

You don't have to wait for any rules, however. The Labor Department has a calculator that will help you do your own projections now. Go to dol.gov/ebsa and search for "Lifetime Income Calculator."

Contact Michelle Singletary, a personal finance columnist at The Washington Post, at singletarym@washpost.com.